News

24

Jun 2016

The pound has tumbled. FTSE 100 crashed. Prime Minister resigned. The headlines facing many of us this morning were not necessarily welcome ones. It may come as a surprise, given we are a firm of insolvency practitioners, that most of us here were unpleasantly shocked by this morning’s news!

The setbacks for all sorts of business types in the coming months are obvious, with the financial services and property industries expected to be some of the hardest hit in the first instance. However, I believe it is important not to underestimate the power of the media and the impact of uncertainty on our economy, and there is certainly room for some positivity in the midst of this.

1. Interest rates are unlikely to rise in the foreseeable future.Whilst low interest rates are not necessarily always a positive, it looks as if they are set to stay where they are for the time being, potentially even taking a further dive as the Bank of England battens down the hatches in order to minimise the economic impact at home of our departure from the EU. A rise in interest rates in a period of economic turmoil such as this could be the catalyst that tips many businesses over the brink of insolvency, resulting in jobs losses and costing both creditors and shareholders. Continued low rates should ease cash flow issues and allow reasonable credit terms to persist, giving many businesses a chance to whether the storm and plan comprehensively for the future. Adaptation to the changes ahead will be the key to survival.

2. The falling pound is good news for someA weaker pound is good news for British exports. Some of our top goods export industries include: machinery; vehicles; gems and precious metals; and pharmaceuticals. If your company is involved in manufacturing goods for export, or supplying such companies, the weak pound could be a bonus, at least in the short term. It has been widely cited that the UK needs to increase its exporting capabilities if we are to see a real recovery for our economy and the government has set an ambitious target of £1 trillion of annual exports by 2020. A key argument of the Brexit campaign was that exports outside the EU would be bolstered should we decided to leave. There are, of course, many factors that could now influence these industries, and it remains to be seen what the long term results will be.

3. UK tourism could see a boostWhilst for us in the UK, the EU exit will inevitably mean more expensive holidays this summer and in the near future, our own tourism industry could feel a welcome uplift in business. The London hotel market has been struggling more than usual recently, undoubtedly not helped by bouts of terror attacks across Europe, and Britain’s own threat level for terrorism set at severe. A cheap pound could entice holiday makers to our shores, which in turn would benefit hotel and leisure industries. The retail industry could, in turn, benefit from this. In particular there is a big market for Chinese tourists who are keen on traditional and luxury British brands. A weak pound and unappealing conversion rates could also dissuade British holidaymakers from travelling abroad, and taking trips within the UK; giving our own local attractions and seaside destinations a boost.

Notwithstanding the above there is no doubt that a number of companies will be adversely affected, and in these circumstances it is important they seek to tackle this by taking advice. Adaptability and forward planning will be of great importance in coming months and business owners should assess the viability of their business model with regard to the imminent changes at the earliest opportunity.